How to Find the Best Mortgage Rates

Finding the best mortgage rates for a new home loan or even mortgage refinancing isn’t hard but it can take some work.  If you want to find the lowest interest rates you can narrow it down by first entering your loan details into mortgage calculators and comparing the results across multiple mortgage lenders.

Mortgage Calculators

The interest rates from the mortgage calculator won’t be guaranteed, they’re just estimates.  The rate quotes are based on a variety of factors (loan amount, credit score, loan-to-value ratio, and FHA vs conventional loans) which vary from person to person but they will help you narrow down where you can find the best mortgage rates.

Comparing Lenders

Once you have a short list of lenders for your home mortgage, put the loan rate and closing costs for each one into a spreadsheet.  Make sure you used the same criteria for each of the mortgage loans to keep your comparison accurate.  Then send the spreadsheet to the lenders on your list and ask them if they can give you a better interest rate or lower closing costs than their competitors.

Negotiating Interest Rates

This approach of getting multiple mortgage quotes online and asking for the best deal doesn’t require a lot of time-intensive negotiation or haggling over the best mortgage rates.  If the banks are interested in your business, they will respond and let you know the best interest rate they can offer.  The main hurdle is finding the name and email of a mortgage consultant or loan officer at the bank that has the authority to bargain with you.

A simple way to find the right person is to do a web search for the name of the bank along with the term “mortgage consultant” or “loan officer”.  If that doesn’t turn up anything, just ask for the name and number of a loan officer using the contact form on their website.

Best Mortgage Rates

One thing to keep in mind, the interest rate the loan officer can offer you is limited by the bank’s willingness to adjust down from current mortgage rates.  We were able to get a really low mortgage rate because the bank we used takes a high volume approach to their home loans.

The bank offers lower interest rates and lower loan origination fees than their competitors, which results in lots of customer referrals from friends and family members.  So even though they earn less on each mortgage, the bank has a steady volume of borrowers thanks to the referrals.

The good news is that mortgage rates are the lowest they’ve been in years; it’s hard to say when they’ll be this low again.  If you’re getting a new home loan or thinking about refinancing your mortgage I’d research interest rates to find out the best mortgage rates available and how they could help lower your monthly mortgage payment.

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5 Good Reasons Buying a House Requires Planning

Buying a house isn’t something it’s easy to just rush into; the more you plan for buying a home the better off you’ll be.  Here are five ways that planning ahead can help.

1) Time to Improve Your Credit Score
Your credit score & interest rate on your new home loan are closely related.  If you know you want to get a mortgage loan you can dispute credit report items and take other steps to improve your credit months before applying for the loan.

2) Mortgage Pre-Approval
Some people don’t realize that your realtor will want you to be pre-approved before making an offer on a house.  Make sure your finances are in order before seeking pre-approval so you will qualify for the desired loan amount.  You don’t want to find a house you really love but have it slip away because you weren’t pre-approved.

3) Saving the Down Payment
The days of split loans (also known as 80/20 loans) are long gone.  You’ll need to save up money for a down payment, the more you can save, the less private mortgage insurance you’ll have to pay.

4) Affording the Costs of Selling
If you have to sell your house first, the costs of selling your house are usually higher than people think.  Make sure you’ve added up all the costs and have enough money put away to cover them.

5) Completing Home Repairs
Again, if you have to sell your existing home, it’s wise to get a home inspection and fix any issues you find to help you sell faster and for more money.  Those home repairs will take time and money so get started on those ahead of time.

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Home Inspection Services Can Help You Sell

Home inspection services may not be something you’re excited about paying for when selling your house but they could be well worth your money.  We had a home inspector come to look for any potential problems and he pointed out some home repairs that could potentially help us sell our house faster and closer to our asking price.

Home Inspection Costs

Home inspection costs will depend on the size of your home and how the inspector prices the work.  Some inspectors charge by square footage, others by how long they spend, and others charge a flat fee for any house under a certain size.  We ended up getting a 10% discount on the inspection of our house because we used the same home inspector to do a review of our house and the home we want to buy.

Home Inspection Checklist

So what do you get for your money when an inspector examines your house?  Here’s the checklist of all the items our inspector reviewed, taken from the home inspection report he sent us after it was completed:

Grounds – Driveway, Sidewalks, Landscaping, Retaining Walls, Grading, Patio, Decks/Balcony, Fences & Gates

Exterior – Porch Cover, Porch, Stairs, Walls, Trim, Chimney

Foundation: Basement & Crawlspace – Walls, Columns, Accessibility, Sump Pump, Crawl Space, Foundation, Beams, Wood Frame, Insulation

Roof System – Attic & Insulation, Roof Covering, Flashings, Gutters & Downspouts

Plumbing  – Main Line, Supply Line, Waste Lines, Hose Faucet, Water Heater, Fuel System, Sprinkler System

Heating – Air Conditioning – Furnace Location & Type, Burners, Pump/Fan Blower, Combustion Air, Venting, Air Filters, Ductwork, Outside Unit Condition & Temp, Condensate Line, AC Controls

Electrical System – Type & Condition, Main Panel, Conductors, Wiring

Interior – Doors,Windows, Interior Walls, Ceilings, Floors, Fireplace, Smoke Detectors, Laundry

Garage Carport – Roof, Floor, Walls, Ceiling, Garage Interior Door, Garage Overhead Door, Garage Opener

Kitchen – Sink, Range, Refridgerator, Dishwasher, Garbage Disposal, Microwave, Countertops, Walls, Outlets

Bathrooms – Sinks, Vent, Bathtub, Shower

The standard service doesn’t usually include mold inspection or termite inspection, some inspectors will offer those as an additional service or work with a contractor who specializes in those areas.

One thing to keep in mind is that it might be difficult to check heating/cooling systems in the alternate season.  For example, he couldn’t check the heat pump in our house, it was too hot outside for it to turn on. 

Finding a Good Home Inspector

Just like any type of contractor, you’ll find a range of quality and service from different home inspectors.  One way to find a good inspector is to look for someone who is ASHI certified.  To belong to the American Society of Home Inspectors, a member has to complete two comprehensive written exams and have done a minimum of 250 professional home inspections following ASHI standards.  Once they’ve met those requirements if they pass an ASHI Standards Compliance Review then they can become ASHI members.

You can also ask if they’ve taken the National Home Inspector Examination (NHIE), some states require it to be a licensed home inspector but many do not.

Benefits of a Seller Home Inspection

The main reason to have your inspection done before listing your home is to eliminate issues that could cause delays in the closing process or end up costing you money.  Most home buyers that make an offer on your house will write an inspection contingency into the contract, where they have 7–10 days after a professional home inspection to walk away from their offer based on what was found.

Depending on what a buyer’s inspection uncovers, they might decide they still want the house but require you to fix the problem or give them a price reduction so they can fix it.  If you find issues first with a seller’s inspection you can have the repairs done on your terms and on your schedule. The difference between you finding local contractors to give you bids on work vs being rushed into a speedy repair by the buyer could come to hundreds or thousands of dollars depending on the problem.

Another option is to disclose the issue up front and adjust the price so that it reflects the cost of the repair.  This way there aren’t surprises that come up after you’ve already negotiated a sales price that could cause the buyer to ask for a lower price or even walk away from the deal.

Home Inspection Tips

In addition to the benefits above, another nice thing about doing a pre-listing inspection is that the inspector typically has gone through hundreds of houses with buyers and has heard how people react to what they see in a home.

Our inspector offered all kinds of tips and insights as he went through our house that we might never have considered.  For example, if there’s dust gathered on top of your furnace or hot water heater he hears buyers wonder about maintenance and worry about having to replace them. Same concept if the air filter in your furnace is dirty, however, if it’s clean AND you have a new spare one sitting by it gives the appearance they are well maintained.

Something else he’s noticed is that dirty dishes sitting in your dishwasher tends to make buyers think the dishwasher is older and dirty and might need replacing.  Even though those indicators may have nothing to do with the actual maintenance or condition of things in your home, it’s useful to know how potential buyers see them and a good inspector can help point those out as they go through your house.

We’re glad that we did a seller’s home inspection and are in the middle of working our way through the inspectors findings and fixing any issues that could cause delays in closing or a reduction in our home price.

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Wire Transfer Lessons for Home Buyers

Wire transfers are a good way to send money to the bank of your title company when you’re buing a house.  I’m used to paying for everything with credit card, or sometimes personal checks, but when you’re dealing with a big money transfer the banks don’t want to mess around with waiting for a check to clear.  One option is to use a cashier’s check but if you need to send money quickly or over distance then wire transfer is a good option.

We had to put down some earnest down in a hurry last week when trying to buy a house so we wired some money to title company’s bank.  I never had the need to wire money before so I had a few things to learn.

Bank Transfer Rules

My first wire transfer lesson is that most banks require you to be at the bank in person to send the money; you can’t request it over the phone.  Since I was at work and the money had to go right away, that meant my wife was the one to initiate the transfer.

I wrote up all the transfer information:

• Funding Account #
• Wire Transfer Amount
• Destination Bank:
  • Account Number
  • ABA
  • Physical Address
• Address of Receiving Company

Then faxed it over to our bank, and they had the transfer ready to go when my wife arrived.  She simply had to verify the information and approve the transfer.

Joint Accounts Required

We have a few accounts at our bank, some of them we’re joint owners on and others we’re not.  My wife and I always deposit checks or check balances for each other and never really think about which accounts we have joint ownership on.

However, if you’re going to wire money out of an account, you must be a joint owner on it.  The rule certainly makes sense but if you’re used to sharing accounts it’s something you might overlook.  I did and at first she wasn’t going to be able to send them money for us.  Luckily I was able to transfer the money into a different account we were joint owners on and the bank was able to send the money.

Funds Transfer Timing

Once the bank enters the transfer information into their system, it’s sent to the wire department who will review the the request, then hopefully approve the bank wire transfer and set it up.

I thought once the transfer was keyed in that the money would go right away but that’s not necessarily the case.  If you’re not in need of a fast delivery that’s no big deal but if you need the money to get there as quickly as possible it’s something to keep in mind.

The request has to travel through the appropriate approval channels and can take several hours after it’s submitted.  It won’t necessarily take that long, ours only took a few minutes to send.  I imagine it has a lot to do with the size of the money transfer.  Ours was relatively small so it was sent pretty quickly but if you’re sending tens or hundreds of thousands of dollars it could take a while.

If you need your money to go out that same day it’s best to initiate the wire transfer first thing in the morning if you can.

Wire Transfer Tracking

If the recipient is really antsy to get their money, you don’t have to call your bank every few minutes and ask for an update.  Once our wire transfer request was entered into the system the bank gave us a transfer tracking number. 

Since you don’t know how long the transfer will take, you can simply forward the tracking # to the recipient and have them monitor for the transaction.

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How I Find Local Contractors on Angies List

Finding local contractors you trust can be a challenge but I’ve found that Angies List can make finding the right person faster and less stressful; whether it’s a handyman, general contractor, or a specialist like an electrician.

We’re looking at buying a house and after a recent inspection needed to get estimates on some needed home repair the home inspector pointed out. Several of the jobs required types of contractors we’d never worked with before so I turned to Angies List help me find good ones.

Searching Angies List

I called up Angies List on the drive to work and told them what I was looking for.  After they verified my account with our email address and mailing address, the rep searched the system for the top rated types of contractors I was looking for.

You can do the searches yourself on the website but you can also call in for help if you’re away from a computer or are having a hard time finding what you need.  The rep went over the companies he’d found and also emailed a report of each to my work and home email address.

Scheduling Estimates

After ending the call I called up one of the companies and setup an appointment to get an estimate.  Once I got to work I went through the other companies in my email and scheduled bids from them as well.  I really like the fact that I was able to get a list of quality contractors and setup appointments with them all in a matter of 45 minutes.

I always try and get three bids to get a feel for the different levels of service that the contractors provide and to figure out the price range for the work. I could just go into the Yellow Pages and setup appointments with three different businesses but with Angies List I can see how past customers rated companies on price, quality, responsiveness, punctuality, and professionalism.

Using that information to help me pick, I have a much better chance the three companies I choose to come out and give me estimates will be quality contractors.

Contractor Reviews

Of course, Angies List doesn’t always have enough recommendations for every type of local contractor.  For example, I was looking for three different types of contractors (mudjacking, foundation work, and mold remediation) when I called up the Angies List rep.

The companies they found for mudjacking and basement work were highly rated but there weren’t many reviews on the mold remediation businesses. I like to find a company with good scores and at least 30 – 35 reviews so you get a better sampling. For some reason the local companies for mold remediation only had a few reviews and some of them weren’t very recent.  Fortunately I have a friend who deals with moldy basements all the time in his job so I called him up and he was able to recommend someone to work with.

Finding Good Contractors

We also had a good referral from our realtor for a contractor to refinish the wood floor in the kitchen and entry and I decided we didn’t need to search any farther after he came out and gave his estimate.  Personal referrals can be a good way to find a quality contractor so we don’t use Angies List in place of referrals from family and friends but in addition to referrals or to check out their ratings from other past customers.

We haven’t had any work done by the companies I found recently so I can’t comment on how they will turn out yet but in the past we’ve had great service from the companies we’ve found.  Most recently we’ve hired an appliance repair contractor and an electrician from Angies List and they both were reasonably priced and did good work.

So if you’re in the market for major home improvement like bathroom remodeling, kitchen renovation, basement remodeling or even just some minor home repairs you might check out contractor reviews on the list.  You can save on a membership with these Angies List discounts.

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Home Loan Documentation Checklist

Required Home Mortgage Documents

Whether you’re applying for a home loan or looking at mortgage refinancing you’ll have to fill out a lot of paperwork and provide documentation of your income and assets before the bank will process the loan.

In our case we filled out a general loan application up front in order to get a mortgage rate quote but the bank wouldn’t lock the rate until we had a contract and wouldn’t start processing the loan until they had the required documentation.

Transferring Documents

When you’re at that step, your bank will send you a bunch of disclosures to sign and a list of documents they need from you.  It used to be that you had to meet with your loan officer for this step or wait for something in the mail but now they can send you the documents electronically using either secure email or a secure website.

Once you have everything signed and your loan documents together you can upload them to a secure site, mail them back, or fax them in; depending on your lender. Here’s a list of the documentation you may have to provide and forms might be expected to sign, not all lenders will require each of these items:

Income Verification

• Most recent pay stubs covering at least 30 days income
• Copy of last years W-2’s
• Contact name and number for your HR Rep

Asset Documentation

• Two months of checking/savings account statements
• Recent copy of your retirement/investment account statements

Proof of Insurance

• Proof of home owners insurance for your current home and your new home
• Copy of your most recent mortgage statement to verify insurance & taxes in escrow

They may also ask for a copy of your photo ID and a deposit to pay for the home appraisal and your credit score before they get started.

Home Mortgage Requirements

Here’s a list of the common disclosures that lenders may require you to sign, date, and return:

Uniform Residential Loan Application – This is the standard Form 1003 you’ll fill out for any home loan.

Good Faith Estimate Acknowledgment – The Good Faith Estimate (GFE) is an itemized list of fees and costs associated with your loan.  The Real Estate Settlement Procedures Act (RESPA) requires lenders to give you this, which is probably why the require you to acknowledge you saw it.  Sometimes this acknowledgment will include an “Intent to Proceed” section that authorizes them to charge and collect the fees necessary to process your loan.

Borrower’s Certification and Authorization – Authorizes the lender to collect & verify information about you in order to process loan.

Request for Transcript of Tax Return – Form 4506T allows the lender to get a copy of your 1040 tax return.  The main thing they’re looking for are non-reimbursed business expenses that you write off on your taxes.  If these are high, then the income amount on your paystubs and W-2s might not be the true amount of income you have available for loan payments.

Federal Truth in Lending Initial Disclosure – Shows the total cost of the loan, with your annual percentage rate and your finance charges.

Social Security Number Verification – Authorizes the social security administration to verify your name and SSN for the lender.

Borrower Certification of Income – This is a form where you confirm the income information you’ve provided is true and that civil liability/criminal penalties could result if you’re falsifying information.

Whew, that’s a lot of documents!  It is a good feeling once you finally have it all printed out, signed, and faxed off to the bank.  Just make sure your printer has a lot of ink before you get started!

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Buying a House Can Make You Cry

Buying a house can be an emotional process.  On top of trying to decide how much house you can afford you’re also attempting to predict how a new house and new neighborhood will fit into your life.  Leaving behind what you know and moving to a place with new neighbors, a new commute, a new back yard, etc can be the cause for some late night worrying.

You try and think through all the angles but you won’t really know what the new house is like until you move in and give it a try.  You ask yourself, “what if we don’t like it”?  Will we regret making the move?  The fear of the unknown can be a big stumbling block to making a decision.

The best way I know to decide is to document the pros and cons and work through them several times to try and see it from all angles.  I don’t think it’s an easy decision to make but at some point you’ll have to choose one way or the other and as long as you’ve done your research your decision will probably work out okay.

I actually took a break from thinking about buying and selling houses for a bit yesterday and browsed around some personal finance articles online.  Below are some of the ones I ran across.  There are quite a few, I was trying to clear my head of house hunting thoughts so I read for a while.  Enjoy!

Frugality

• Plunge into Summer with Savings @ Little House in the Valley
• Four Reasons To Grow Your Own Garden @ Saving Money Today
• Cheap Wedding Ideas On A Small Budget @ The Digerati Life
• Everyday Conveniences for Cheaper @ Suns Financial Diary
• How to Complain and Get Your Money’s Worth @ PT Money
• How to Save Money While Traveling @ Get Rich Slowly
• 5 Frugal Ways For to Spend Summer Vacation @ Generation X Finance
• Turn Off Your Air Conditioner & Save Summer Money @ Consumerism Commentary

Taxes

• 2010 Sales Tax Holidays @ Five Cent Nickel
• Hike the federal gas tax? @ Don’t Mess With Taxes
• How to Take Charge of the Bush Tax Cuts @ My Dollar Plan
• What’s Going on With the Estate Tax For 2011? @ Good Financial Cents
• Tax Considerations for Unmarried or Same-Sex Couples @ The Oblivious Investor
• How To Make Estimated Tax Payments For the Self Employed @ My Two Dollars

Investing

• Is Generic Financial Advice Helpful or Hurtful? @ My Money Blog
• Why are We so Clueless about the Stock Market @ Beating Broke
• Beware Dividend Reinvestment When Selling Stocks @ Bargaineering
• Stock, Stock Market, Stock Exchange-Explained! @ Millionaire Nurse

Career

• Average Career Salaries @ Brip Blap
• Five Tips When Starting a New Job @ Free Money Finance

Personal Finance

• Money Smart Life Interview @ Couple Money
• Earning More vs. Saving Money @ Lazy Man & Money
• Learning the Hard Way and Being Ready to Learn @ Million Dollar Journey

Debt

• Frugality and Focus in Education @ Studenomics
• Should You Give Even If You’re In Debt? @ Out of Your Rut
• Pros and Cons of Debt Consolidation @ The Money Crashers
• What I Learned from the Prosperity Game @ Eventual Millionaire
• Are These Really 10 Things We Can’t Live Without? @ Budgeting in the Fun Stuff
• The Secret to Getting Out of Debt: Forget Snowballs & Interest Rates @ Frugal Dad

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Our Credit Card Rewards Surprises

Our credit card rewards show up as a statement credit once a year for our Blue Cash card.  I had forgotten this was the time of year when the cash back showed up so when I checked our most recent credit card statement, I was surprised at how much less we owed than normal. 

I was on my way to congratulate my wife on a low spend month, we’ve been cutting back on our spending to save up more for buying a house, when I realized the main reason the bill was so low was due to our rewards payment.

We definitely spent less than normal but the chunk of cash back is by far what made the biggest difference.

Grocery Rewards Surprise

Another thing I was surprised by was how much of our rewards came from cash back on groceries.  I guess 3% of any expense can add up over a year if you spend enough on it. I really shouldn’t be surprised since our growing son is eating more and more at dinner time (fewer left overs for me).

Gas Rewards Surprise

As I went over the rewards, I dug into the terms of the rewards program to see how our Costco membership could effect our spending on our card. To my surprise, our Blue Cash doesn’t earn 2% back when used for gas at Costco.  I’ll either have to gas up at a station where I can use it or use a True Earnings card, which will earn me 3% on gas at Costco.

Total Rewards Surprise

At the bottom of our cash rebate earnings summary was listed the total cash back rewards we’ve earned since we started using the card.  I was definitely surprised to see we’ve earned just over $3500 while using the card. Unfortunately the statement didn’t list the start year so I’m not sure how many years that covers but it’s a nice chunk of change from the Blue Cash card.

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Home Loan Closing Costs

The closing costs for a home loan are something that won’t show up in in the results of a mortgage calculator.  When you enter the loan amount, the term, and interest rate a loan calculator gives you back your projected monthly home mortgage payment and sometimes an amortization schedule.

Don’t Forget Closing Costs

Although the mortgage is your ongoing cost, there are one-time costs you’ll also have to pay at the time you close the loan with your bank or credit union.  These are known as closing costs and ususally run about 1.5% – 2% of the value of the home you’re buying. Unfortunately you’ll probably have to pay closing costs even if you’re just doing a mortgage refinance to get a better interest rate. 

So how much cash do you need to plan on spending on closing costs?  Some lenders will let you roll your closing costs into your mortgage so you don’t need to have the cash at closing time.  Of course, this raises the total amount you’re borrowing and increases the amount of interest you’ll pay over the life of the loan so ideally you’ll pay your closing costs up front.

Closing Cost Calculators

You won’t find many stand alone closing cost calculators, most of them are built into lender’s interest rate calculators.  To find this, look for a button or link that says “Check Mortgage Rates” or “Get Interest Rates” on your bank’s website.

After you enter the loan purpose (purchase or refinance), the loan amount, home value, location, property use (primary residence, investment property, vacation home) and property type (existing single family, new single family, condo, multiple unit property) you’ll be given a rate quote.

Many times the quote will include the rate, the APR, and a link to the total cost of the loan.  Follow the “Total Cost” link to find out what your closing costs would be if you borrowed from that lender.

Compare Closing Costs

When you apply for a loan, the RESPA Act (Real Estate Settlement Procedures) requires that the lender give you a “Good Faith Estimate” that contains an itemized list of fees and costs associated with your loan.  The internet has made it easy to compare closing costs from different lenders, you don’t even have to apply for the loan, you can get an idea of what their charges are from their website. Keep in mind these are not official quotes and could change later on but at least give you a starting point.

Below is a table I put together recently to compare mortgage closing costs from two local lenders.  As you can see the loan origination fee and title insurance services are usually some of the biggest charges.  If you decide to pay loan points you can get a lower interest rate but I didn’t ask to have those included in my interest rate estimate.

I put the closing costs of the two lenders side by side and it was easy to see who’s the best option when it comes to cost. 

	Lender A	Lender B	A vs B
Origination charge	$425.00	$488.00	$63.00
Your charge for this interest rate	$0.00	$0.00	$0.00
Appraisal Fee	$400.00	$400.00	$0.00
Credit Report	$25.00	$22.00	($3.00)
Hazard/Flood Determination	$25.00	$12.00	($13.00)
Tax Service Fee	$65.00	$0.00	($65.00)
Title services and lender's title insurance	$325.00	$275.00	($50.00)
Termite Inspection	$0.00	$50.00	$50.00
Owner's title insurance	$693.75	$0.00	($693.75)
Government recording charges	$133.00	$78.00	($55.00)
Fee Total			($766.75)
Initial escrow deposit	$1,262.48	$1,375.00
Daily interest charges	$387.74	$387.74
Homeowners insurance	$787.44	$1,125.00

Thanks to recent legislation there’s a new standard for the Good Faith Estimate that makes it even easier to compare the itemized costs. So be sure you consider closing costs when taking out a home loan and shop around not just for the best interest rates but also the lowest closing costs.

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How Your Credit Score Impacts Interest Rates

Your credit report plays a major role in the interest rates you qualify for when you apply for a home loan. A good credit score could save you a lot of money in mortgage interest charges over the life of your new loan or refinance.

Credit Scores Affect Interest Rates

I saw this first hand last week when I was pre approved for a home loan by a local bank. When the mortgage officer pulled our credit report I expected my credit score to be around 750 so I was pleasantly surprised when it was over 800.  They ran a credit check with each major credit bureau (Equifax, Experian, and TransUnion) and picked the middle score, which put me above 800.

Many lenders use a tiered pricing approach where you get the best interest rates when you have a high credit score, maybe 770 and above, but the rate you pay to borrow goes up as your credit score goes down.  Since I was over 800, instead of 750 where I had projected, that put us into the best interest rate tier.

Checking Your Credit

Fortunately for me, it was a good surprise but to avoid any bad surprises you might want to get your free credit report before you start applying for pre approval so you know if you need to do anything to fix your credit first.

The online credit report from Annual Credit Report won’t tell you your score but it does give you a chance to look at the details behind what could be giving you a poor credit rating.  If you want to check your credit score so you know where you stand there are a few different options. 

• Sites like Credit Karma will show you a version of your credit score online, it’s not your fico score but it can give you a rough idea.
• myFICO has a credit score estimator that asks you a series of questions and based on your answers estimates what your credit score will be.
• Experian offers a $1 credit report and credit score that converts into monthly credit monitoring after the 7 day trial at FreeCreditReport.
• Equifax gives you your credit score and a credit score report for $12 with ScoreWatch.

If after you view your credit report you aren’t where you need to be for a good interest rate there are things you can do to improve your credit score and rebuild your credit.  Of course it takes time for the credit reporting agencies to pick up your changes, lenders typically don’t report payments to them more than once a month.

Credit Scores & Home Loans

As I mentioned above, a good credit score can qualify you for a lower interest rate; on a big loan like a mortgage that lower rate can save you thousands of dollars.

Your credit score can also have an impact on what price home you’re able to afford.  One of the scoring factors that lenders look at is your Loan to Value ratio or LTV.  This ratio shows the relationship between the dollar amount you’re borrowing and the value of real estate you’re buying.  The higher the ratio, the more risk the bank is taking to lend you the money.

For example, if you want to buy a house appraised at $120,000 and need to borrow $110,000 (an LTV of 91.6%) that means you’re only putting down a $10,000 down payment.  On the other hand, if you had an LTV of 75% that would mean you put down $30,000 and the bank takes less risk.

Your credit score matters because banks are more likely to approve a loan with a higher LTV ratio if you have good credit.  If you don’t have much money for a down payment and you have a bad credit score, the bank might only approve a smaller loan, which means you’ll have to find a lower priced house.

One thing to keep in mind is that look at factors other than credit score, another big one is your debt to income ratio or DTI.  Your DTI is a measure of your monthly debt payments (student loans, mortgages, car loans, credit card debt) compared to your monthly income. 

Fixing Your Credit Score

There are a variety of steps you can take to fix your credit but it’s difficult to know what improvements each action will make to your overall score.  If you want to do some “what-if” analysis, myFICO has a credit score simulator that lets you enter a variety of scenarios such as on time bill payment, paying down credit card balances, opening credit lines, and missing payments to see how they might affect your credit score.

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